By BRIAN SLODYSKO, P-I REPORTER

Updated 10:00 pm, Sunday, February 24, 2008

Premera Blue Cross, a Washington-based nonprofit health insurance company, used surpluses gained through large rate increases here to help keep a for-profit Premera subsidiary in Arizona from losing money.

Statements filed with the Washington State Insurance Commissioner's office indicate Premera transferred $49 million to the struggling LifeWise Health Plan of Arizona between 2004 and 2007. Although the transfers aren't illegal, they've raised concerns that the nonprofit company is raising rates for Washington residents to subsidize an out-of-state for-profit venture.

"At a time when consumers are hard-pressed to pay their premiums -- if they can afford health insurance at all -- I find Premera's behavior deeply troubling," Insurance Commissioner Mike Kreidler said. "Premera shouldn't be allowed to subsidize a for-profit health plan in Arizona at the expense of Washington policyholders."

Kreidler is hoping lawmakers this year give him more oversight over rate increases proposed by insurance companies.

Premera's assistance to LifeWise comes as individual health insurance holders in Washington have seen yearly double-digit increases in rates and the state's main individual health insurance providers (Premera, Group Health and Regence) have amassed surpluses totaling $1.4 billion in excess of the amount required to cover claims.

The Arizona payout raised concerns about market manipulation by Premera and LifeWise, which, according to insurance commissioner spokeswoman Stephanie Marquis, have kept policy rates low in Arizona to attract customers while relying on Washington surpluses to cover losses.

The companies "are major, major players in the stock market and in the bond market, which in the past has generated huge amounts of income. When they have lots in surpluses they can play major games in market," said Sen. Karen Keiser, D-Seattle.

Premera "has LifeWise, they have LifeWise Arizona; it's a shell game. They're just moving money from one to the other," Keiser said. "They lower the rates for a time (to attract new policyholders) and people are now seeing 40 percent, 100 percent increases."

Jeffrey Roe, president and CEO of LifeWise Washington, a Premera affiliate company, acknowledged that money was used to help the Arizona company. But he says claims of market manipulation are false.

"There was no artificial suppression of rates by Premera on our business in Arizona in order to attract members," Roe said.

A large cushion of money is needed, however, to keep insurance companies prepared for potential disasters, such as a pandemic, Roe said. As companies take on additional clients reserves grow, reflecting the additions to coverage pools, he said.

"The reserves we hold represent an equivalent of only three months of premiums," Roe said. "If something were to happen to our company, we have the ability to pay claims for just three months."

Roe said he imagines there is an eventual limit to the amount of money health insurance providers need in surplus, but said the money was also important in helping the company grow.

Many of the tax breaks typically given to nonprofit companies are not extended to health insurance providers, because of legislation passed by the federal government in 1986. As a result, companies have paid almost $200 million in taxes in the past five years alone.

Individual policyholders have been hit hardest by rate increases -- which, in some instances, have gone up by as much as 40 percent, largely because they are dealt with on an individual basis and lack the bargaining power of larger group plans.

Last month the state Senate passed a measure giving the insurance commissioner oversight of rate increases proposed by companies, and the bill is expected to pass the House.

The state insurance commissioner had oversight of rate increases until the Legislature, in 2000, eliminated commissioner oversight. At the time, it was faced with a tanking health insurance industry that had many carriers threatening to drop coverage in the state, potentially leaving many previously insured without coverage.

But Keiser said claims made in 2000 for eliminating commissioner oversight were overstated, largely because company losses were tied to investments made in the dot-com market that failed at the time, and, she said, not because of rate increase restrictions imposed by the commissioner.